Item 1.01. Entry into a Material Definitive Agreement.
On June 4, 2018, Sears Holdings Corporation (the Company), through Sears, Roebuck and Co., Kmart Stores of Illinois LLC, Kmart of Washington
LLC, Kmart Corporation, SHC Desert Springs, LLC, Innovel Solutions, Inc., Sears Holdings Management Corporation, MaxServ, Inc., Troy Coolidge No. 13, LLC, Sears Development Co. and Big Beaver of Florida Development, LLC (collectively, the
Borrowers), entities wholly-owned and controlled, directly or indirectly by the Company, entered into a Third Amended and Restated Loan Agreement (the Consolidated Loan Agreement), with JPP, LLC, as Agent, and JPP, LLC, JPP
II, LLC and Cascade Investment, L.L.C. (Cascade), as lenders (collectively, the Lenders), which amends and restates the Second Amended and Restated Loan Agreement, dated as of October 18, 2017, among the Company, the
Borrowers, JPP, LLC and JPP II, LLC (the Existing Loan Agreement). Mr. Edward S. Lampert, the Companys Chief Executive Officer and Chairman, is the sole stockholder, chief executive officer and director of ESL
Investments, Inc., which controls JPP, LLC and JPP II, LLC (collectively, JPP).
Immediately prior to the effectiveness of the Consolidated
Loan Agreement, approximately $593 million in loans were outstanding under the Existing Loan Agreement. In connection with the Consolidated Loan Agreement, the Lenders made an additional advance to the Borrowers in an aggregate principal amount
of approximately $186 million (the Additional Advance), such that the aggregate principal amount of the loan outstanding under the Consolidated Loan Agreement as of closing was approximately $779 million. The loan under the
Consolidated Loan Agreement matures on July 20, 2020.
The Borrowers used the proceeds of the Additional Advance to repay the loans outstanding under
the 2017 Real Estate Loan Facility (as defined below). Approximately $93 million of the loan under the Consolidated Loan Agreement, which as of closing is held by Cascade, is structured as a first out tranche evidenced by promissory
note A (Note A) and bears interest at LIBOR plus 6.50% per annum. The remainder of the loan under the Consolidated Loan Agreement is evidenced by promissory note B (Note B), which as of closing is held
by JPP and bears interest at LIBOR plus 9.00% per annum.
The Borrowers paid approximately $1.6 million in upfront fees to the Lenders in connection
with the entry into the Consolidated Loan Agreement. In addition, to the extent any portion of the loan evidenced by Note A remains outstanding on December 4, 2018, the Borrowers must pay the Lenders holding Note A an additional fee of 1.00% of
the principal amount outstanding under Note A as of such date, and to the extent any portion of the loan evidenced by Note A remains outstanding on June 4, 2019, the Borrowers must pay the Lenders holding Note A an additional fee of
2.00% of the principal amount outstanding under Note A as of such date.
The loan under the Consolidated Loan Agreement is guaranteed by the Company
and is secured by a first priority lien on 69 real properties owned by the Borrowers, which include the 56 real properties securing the Existing Loan Agreement as well as 13 real properties that previously secured the 2017 Real Estate Loan Facility.
To the extent permitted under other debt of the Company or its affiliates, the Loan Facility may be prepaid at any time in whole or in part, without penalty or premium. The Borrowers are required to apply the net proceeds of the sale of any real
property collateral to repay the loan. Any such prepayments or repayments will be applied first to Note A until Note A is repaid in full, and then to Note B.
The Consolidated Loan Agreement includes certain representations and warranties, indemnities and covenants, including with respect to the condition and
maintenance of the real property collateral. The Consolidated Loan Agreement has certain events of default, including (subject to certain materiality thresholds and grace periods) payment default, failure to comply with covenants, material
inaccuracy of representation or warranty, and bankruptcy or insolvency proceedings. If there is an event of default, the Lenders may declare all or any portion of the outstanding indebtedness to be immediately due and payable, exercise any rights
they might have under any of the Loan Facility documents (including against the collateral), and require the Borrowers to pay a default interest rate equal to the greater of (i) 2.5% in excess of the base interest rate and (ii) the prime rate
plus 1%.
The foregoing description of the Consolidated Loan Agreement does not purport to be complete and is qualified in its entirety by reference to
the Consolidated Loan Agreement, a copy of which is filed herewith as Exhibit 10.1 and is incorporated by reference herein.
Item 1.02.
Termination of a Material Definitive Agreement.
On June 4, 2018, in connection with entry into the Consolidated Loan Agreement, the Company
repaid all loans outstanding under the Amended and Restated Loan Agreement, dated May 22, 2017, by and among JPP, LLC, JPP II, LLC, Cascade Investment, LLC, Sears, Roebuck and Co., Sears Development Co., Innovel Solutions, Inc., Big Beaver of
Florida Development, LLC and Kmart Corporation, as amended (the
2017 Real Estate Loan Facility
), and terminated the agreement. In connection therewith, the mortgages on the 13 real properties securing the 2017 Real Estate Loan
Facility were released and these properties were pledged as collateral for the Consolidated Loan Agreement.